Ssangyong Engineering & Construction may file for court protection soon because creditors are refusing to provide a financial lifeline to the troubled builder

2013-12-25 18:03

Ssangyong may go under court control

Na Jeong-ju
Ssangyong Engineering & Construction may file for court protection soon because creditors are refusing to provide a financial lifeline to the troubled builder, sources said Wednesday. But it is feared that such court protection could push hundreds of Ssangyong’s subcontractors to the brink of bankruptcy, and deal another setback to the construction sector, which is already in a deep recession.Chances are also high that the firm will be delisted from the stock market. A delisting could erode confidence among the firm’s overseas partners ― it is conducting construction projects worth $2.7 billion in eight countries ― and trigger lawsuits by individual stock investors. As of September, 5,477 individual investors hold a combined 2.15 percent stake in the builder.
In recent months, creditors have held rounds of negotiations over how to resolve the firm’s liquidity crisis, but failed to reach an agreement.
“The creditors are unlikely to find common ground by the Dec. 27 deadline,” a source said. “If the firm fails to get additional loans, the only remaining option is to file for court receivership. Its stocks will then be delisted to prevent further damage to investors.”
Woori Bank, the main creditor, earlier proposed a debt-for-equity swap program to other creditors, under which they would provide 500 billion won ($472 million) to Ssangyong. Woori later cut the amount to 380 billion won, but other creditors didn’t agree.
At the center of dispute is the Military Mutual Aid Association (MMAA), the operator of pension funds for soldiers which holds Ssangyong’s debts worth 123.5 billion won. The association earlier seized Ssangyong’s assets, demanding creditors pay off its debts first.
That means, even if creditors agree to finance the builder, a large chunk of the money will be paid to the pension operator.
On Monday, Woori CEO Lee Soon-woo met with senior MMAA officials, but failed to persuade them, Woori officials said.
Apart from that, most creditors are reluctant to inject fresh capital into the builder due to its worsening bottom line. Creditors include Seoul Guarantee Insurance, Korea Development Bank, Shinbank Bank, Kookmin Bank and Hana Bank. They have rejected Woori’s debt-for-equity swap proposals, citing growing risks of losing money.
Ssangyong officials, however, claim that, without fresh capital, the firm will have to give up lucrative overseas construction projects.
“A stock-delisting virtually means bankruptcy to many of our overseas partners. That’s a big issue for them,” a Ssangyong official said. “We can make a turnaround with some financial help. We won’t give up hope to the last minute that creditors will reach an agreement to help us.”
Ssangyong has been under the creditor-led debt restructuring program since February.
It’s the second such program for Ssangyong. The firm filed for the program in 2001 after Ssangyong Group went bankrupt following the Asian financial crisis, and ended it three years later.
In the late 2000s, the construction firm became more profitable after it secured large-scale engineering deals overseas under CEO Kim Seok-joon. However, its capital quickly dried up last year due to massive losses from its domestic business.
Kim is the second son of the late Ssangyong Group founder Kim Sung-gon.